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Alibaba earnings preview: Is the Chinese tech legend's spring coming?


MongiIG

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Despite a turbulent past three years, Alibaba Group Holding Limited (BABA) is now being closely watched by investors as China reopens and the company's AI-powered ecosystem continues to make exciting progress.

AlibabaSource: Bloomberg
 
Hebe Chen | Market Analyst, Melbourne | Publication date: Monday 15 May 2023 

Alibaba earnings date

Alibaba Group will report its March quarter earnings and full fiscal Year 2023 results on 18 May 2023 before the market opens.

Alibaba earnings expectation

According to the consensus forecast for the upcoming quarter, Alibaba is expected to report Earnings per share (EPS) of ¥9.45, representing a 55% increase from the previous quarter.

Meanwhile, revenue is anticipated to reach ¥209.29 billion (bn), a 4.4% improvement year-over-year (YoY). In the fourth quarter of 2022, the company reported a revenue of ¥247.76 bn ($35.92 bn), a Yoy increase of 2.13%. Overall, Alibaba's last earnings report was mixed, with the company beating revenue estimates but missing EPS expectations. Nonetheless, the company's net profit margin increased significantly (from 3% to 14%), which is an encouraging sign for the upcoming quarters.

Alibaba earnings expectationSource: Alibaba

Alibaba earnings key watch

Alibaba Group Holding Limited (BABA) has weathered a turbulent three years, facing multiple headwinds, including a slowing Chinese economy, intensified government regulations, and the lingering impact of COVID-19 pandemic restrictions. However, the company has shown its resilience. With the reopening of China and the return of domestic demand, investors are keen to see whether clear skies are finally ahead for Alibaba.

From one to six

Alibaba announced on 28 March 2023 that it would be splitting its business into six units, “the most significant governance overhaul in the platform company’s history.” These six units include:

  • Cloud Intelligence Group
  • Taobao Tmall Commerce Group
  • Local Services Group
  • Cainiao Smart Logistics
  • Global Digital Commerce Group

Alibaba said the split is part of its efforts to "accelerate the company's transformation into a technology-driven company to better serve its customers and partners." Investors praised the move and pushed the BABA group's stock price up more than 10% after the announcement.

Under the new structure, BABA will become more decentralised, giving each business unit the autonomy and motivation to compete more effectively with its rivals. The reorganisation is also expected to lead to cost savings. Alibaba expects to save $1 bn by the end of 2023.

While only time can tell whether the split will be a success for the Chinese e-commerce giant, it is a positive sign that the company is moving on to shrug off the past cloud. More importantly, by splitting into smaller sizes, the new shape of the business kingdom is anticipated to ease the regulatory pressure from the wary policy markers.

AI-powered Ecosystem

The race to develop AI is a global one, but China is quickly becoming a major player in the field. Alibaba unveiled its own ChatGPT-like Tongyi Qianwen AI in April. This AI bot will be integrated with Alibaba’s Cloud Services. While it’s only a start, Alibaba said it plans to have all applications across its ecosystem, including e-commerce, search, navigation and entertainment, to be powered by the AI-based model in the near future. That’s to say, despite the decentralised transformation, company like Alibaba still enjoy the heads-up by unifying its scalability today to seize the AI future which appears only move faster.

However, this is also a new battlefield with no shortage of challenges. First is the current competition. Alibaba and Baidu are two of the leading Chinese tech companies in the AI space. Baidu, the Chinese version of Google with 665 million monthly active app users, was ahead of Alibaba in launching its AI bot Ernie in March.

The other challenge is the tightening regulations. According to the newly-proposed rule by China’s Cyberspace Administration of China (CAC), firms will be required to submit a security assessment to the government before using generative AI products to provide services to the public. In addition, the content generated by the AI tool will be under strict scrutiny. Clearly, the nation’s policy markers view this new technology trend as more of a rising concern than opportunity. As such, whether or not this speedy AI development will turn to another round of regulatory examination will be another crucial point.

Alibaba share price technical analysis

China’s reopening catalyst in late 2022 saw the Aliaba’s stock price regain momentum and soar by nearly 100% from November and peaked at $125 on January 25. However, since that peak, Alibaba’s stock price resumed its downtrend and plunged to $80 in two months.

Despite a snap rebound after Alibaba announced its restricting plan, the mid-term downtrend remains valid. Before touching the descending trend line, there are multiple pressure levels in the prospect. 50 and 200 days moving averages at around $88-$91 are the imminent ones. Above that, 100-day moving average (MA) is waiting to be conquered.

In a bulls-favourite scenario that the level of $103 can be reached, a double-bottom shape should bode well for Alibaba to deliver a bull-turn. Otherwise, based on the current daily chart’s setup, it’s more likely that the price would stay in the triangle space boarded by the $80 bottom line and the downtrend trend line for some time.

Alibaba share price technical analysisSource: IG group

IG client sentiment

IG client sentiment

Alibaba earnings summary

  • Alibaba is expected to demonstrate great improvements in earnings and margin
  • Alibaba’s new structure is welcomed by the investors
  • Alibaba aims to build up an AI-powered ecosystem
  • Alibaba’s share prices have stayed in a downtrend since early April

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